‘Little brothers’ eyes get big

Contact: Brenon Daly

As virtually all investors are acutely aware, public companies get their valuations reset every trading day. And with the Nasdaq having been cut in half since the highs on the index in November 2007, those valuations are universally being reset lower. That has created a somewhat counterintuitive situation where public companies sometimes trade at a substantial discount to their privately held counterparts, despite typically being larger and certainly more liquid and transparent investments.

That pricing discrepancy has spurred some of the ‘little brothers’ to make runs at their publicly traded brethren. Last year, we saw HireRight taken private after a year on the Nasdaq by privately held US Investigations Services for $195m, or about twice the sales of the human capital management (HCM) vendor. On a larger scale, Sophos reached for German endpoint encryption vendor Utimaco in a private-public transaction last summer.

What other private company might be viewing the Nasdaq as a shopping list? We’ve heard that software-as-a-service (SaaS) roll-up nGenera recently ‘broadened its horizons’ to also include public companies. The vendor, which we understand did roughly $50m in sales in 2008, has raised some $50m from investors including Hummer Winblad Venture Partners, Foundation Capital and Oak Investment Partners. It has already inked six acquisitions.

Our understanding is that nGenera is looking to add HCM or even sales compensation management technology, which it sells as part of a larger on-demand offering. In addition to being attracted to the discount valuations of public companies, nGenera is also eyeing Nasdaq-listed targets because they are typically more mature than startups and would have more customers to add to nGenera’s existing roster of some 300 enterprise clients.

nGenera’s acquisition history

Announced Target Deal value Target description
May 21, 2008 Talisma Not disclosed SaaS customer service automation
March 5, 2008 Iconixx Not disclosed On-demand talent management HR software
November 29, 2007 New Paradigm Group Not disclosed Research company
October 3, 2007 Industrial Science Not disclosed Business simulation software
September 13, 2007 Kalivo Not disclosed On-demand collaboration provider
May 7, 2007 The Concours Group Not disclosed Research and executive education firm

Source: The 451 M&A KnowledgeBase

An Oak accord

Oak Investment Partners has finally helped broker a marriage for portfolio company Talisma – a full half-decade after the startup stumbled on its way down the aisle. In both cases, however, it isn’t exactly clear whether the investment firm should be sitting on the bride’s side or the groom’s side at the wedding. In fact, Oak would have a seat on both sides of the aisle.

In this go-round for Talisma, Oak’s late-March investment of $50m in nGenera helped the SaaS rollup add Talisma to its portfolio. If the strategy sounds familiar, it’s because Oak, which owns a majority of Talisma, had a nearly identical plan for the CRM vendor in late 2003. In that case, Oak wanted to stitch together Talisma with fellow portfolio company Pivotal Corp, in a deal that valued publicly traded Pivotal at $48m. Just as that deal was heading toward a vote, however, two other companies outbid Oak for Pivotal. (First, it was Onyx Software, then it was CDC Software. Of course, those companies would go at it again three years later when CDC tried to spoil the purchase of Onyx by Consona, which was then known as M2M Holdings.)

What exactly Oak plans to do with its newly enlarged portfolio company, nGenera, is anyone’s guess. However, it could do a lot worse than follow the strategy of Consona, which was taken private by Battery Ventures. Since the LBO, we understand Battery has pulled out something like six times its money from the CRM rollup, which is still rolling along. Maybe nGenera will serve as Oak’s enterprise SaaS rollup. The company has already done six deals – and counting. 

nGenera’s (fka BSG Alliance) acquisitive history

Announced Target Deal value Target description
May 21, 2008 Talisma Not disclosed SaaS customer service automation
March 5, 2008 Iconixx Not disclosed On-demand talent management HR software
Oct. 3, 2007 Industrial Science Not disclosed Business simulation software
Nov. 29, 2007 New Paradigm Not disclosed Research company
Sept. 13, 2007 Kalivo Not disclosed On-demand collaboration provider
May 7, 2007 The Concours Group Not disclosed Research and executive education firm